Understanding the demand drivers is crucial in making informed decisions about commercial real estate development and investment. According to John Chang of Marcus & Millchap, supply is also a key factor that must be considered. In a recent video, Chang emphasized the importance of analyzing supply in the four main real estate sectors.
In terms of office space, there will be approximately 67 million square feet added by 2024 according to Marcus & Millichap’s forecast. Despite an 18% vacancy rate, this may seem like a significant amount; however, it is only half of what was seen in the early 2000s and primarily located in suburban areas.
The retail sector has also experienced slow growth with only about 40 million square feet expected to be delivered this year – significantly lower than previous years. This has contributed to its outperformance with a projected vacancy rate of just 4.8% by 2024.
On the other hand, industrial construction continues at an impressive pace with an estimated delivery of over three times more space than retail – around360 million square feet by2024 which could leadtoa higher vacancy rateof6%. Multifamily construction will set arecordwithan anticipated480000 new units being addedinthe same year.However,thiswillalso contribute toa rise invacancy rates (projected at6%)asmorepeople opt for renting due topurchasing costsbeing unaffordable for many Americans.
Chang predicts that while completions may exceed absorption ratesin2025,the apartmentconstruction pipelineisexpectedtodecline afterthat point.This suggests thatdemandwill once againoutpace supplyand highlights theneedfor careful monitoringofCREsupply trends moving forward.
